Trickle-down tax reform never reaches the bottom

By Jennie Young
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Nov 5, 2017 at 12:00 AM

Even before the Republican tax cut plan was unveiled, 56 percent of Americans pretty well suspected that most benefactors would be the wealthy class and not themselves. Now and then a member of the wealthy class is offended by the injustice and speaks up for a fair system.

Warren Buffet is one. Another is billionaire Nick Hanauer, who published an article in October to argue that a tax reform which favors ordinary people is the only approach that will for sure lead to actual growth and a healthier economy for everyone — including the rich — over the long run.

He says the Trump/Ryan tax plan is a scam that won’t create jobs, “a massive and destructive financial giveaway masquerading as a pro-growth tax reform.” He promotes not a penny of tax cuts for rich guys like himself (and Trump), instead an actual tax increase on them as the only way toward sustainable growth, increased productivity and opportunity in a better jobs market.

He points to the booming economy after Clinton’s tax increase and the steep economic decline after Bush slashed taxes for the rich. Only after Bush’s tax cuts expired did Obama’s post-Great Recession recovery ignite the longest period of sustained job growth in our history.

He compares Kansas’s dead last economic performance after Gov. Sam Brownback’s drastic tax cuts on corporations and individuals, while California became the nation’s fastest growing economy by 2015 after raising its top rate in 2012 to the highest in the nation, against the dire warnings of economic disaster by the state‘s Republicans. Brownback set out to prove with his “real live experiment” that the trickle-down theory works, but found himself compelled to re-impose the taxes he had so confidently cut. Seems Kansans didn’t appreciate seeing their schools closed for lack of funding.

Republican gospel is that tax cuts on the rich, the great job creators, increases growth. Hanauer says the evidence is clear that raising taxes on the rich is actually pro-growth, that Republicans have economic cause and effect reversed. The Republican tax plan will create more inequality, which can’t be pro-growth. Only when we invest in ordinary Americans — in wages, education, healthcare, infrastructure — do we significantly increase initiative and demand necessary for the dynamic feedback loop that fuels prosperity. The Trump/Ryan plan to slash tax rates for the wealthy and the corporations they run would do nothing to decrease inequality or increase demand.

Wealthy investors and corporations, including Hanauer’s, already have more money than they know what to do with — literally trillions of dollars of hoarded cash sitting in U.S. banks doing absolutely nothing. And get this: that includes the several trillion dollars of foreign earnings Trump wants “to repatriate” tax free. Hanauer says these “overseas” reserves are an accounting trick to hide the fact that this money is already in U.S. bank deposits, in U.S. Treasury notes and in dollar-dominated corporate securities.

He says every time Congress has declared a “tax holiday” to bring foreign earnings home to ostensibly spur growth, corporations funneled their after-tax windfall to stock buybacks and payouts for shareholders. With no delivery of an economic boost from “bringing home” dollars that were in effect already here.

Very rich Americans’ money is for the most part idle and cutting their taxes will not get it flowing again.

“The real problem with our economy is that we are concentrating wealth in the hands of people who aren’t spending it, while starving the working and middle class Americans of the ability to invest in themselves, not to mention sapping the consumer-spending power that accounts for 70 percent of the GDP,” Hanauer writes.

He also admits the American tax code is already rigged in favor of the rich and powerful and the Republican plan will only make it worse. It’s time to move it in the other direction.

Rich people make most of their money on dividends and capital gains and pay a lower tax rate on that investment income than factory workers, truck drivers, teachers, nurses and small business owners. Not only unfair, this increases inequality and slows demand and innovation.

Hanauer promotes more tax brackets, not fewer, with substantially higher tax rates on the wealthiest and largest inherited estates. The economy needs that for a massive reinvestment to benefit the working and middle classes. Not just because it’s fair, but because fairness and growth tend to go hand in hand.

The trickle-down myth, which Trump/Ryan’s plan relies on, is and always has been a scam and intimidation tactic. It’s to get us to believe taxing the rich is bad for us, that we’ll for sure lose our jobs or have to accept lower wages. That’s the gospel preached since the Reagan years for the benefit of the rich, and spiraling inequality has been its product.

Billionaire Hanauer says raise taxes on the rich and watch America grow. Don’t just do it for ourselves, but for him, too, and all his rich friends. Fairness is the best prescription for a healthy economy. Now’s a good time to call U.S. Rep, Phil Roe and U.S. Sens. Lamar Alexander and Bob Corker before they set us on a worse path.